Paper 2 General Insurance Quiz 26

The concept of ‘Agreed Value’ in insurance, particularly for high-value items like jewelry or antiques, means that the sum insured is fixed and payable in the event of a total loss, irrespective of the item’s actual market value at the time of the loss. This differs from the principle of indemnity, which aims to restore the insured to their pre-loss financial position. For partial losses, however, the principle of strict indemnity typically still applies, meaning the payout would be based on the actual loss incurred, not the agreed value. Therefore, the statement that the agreed value is payable for both total and partial losses is incorrect.

The question tests the understanding of an insurer’s obligation regarding policy renewals. According to general insurance principles, an insurer is not legally obligated to remind the policyholder about an approaching renewal date. If the policyholder fails to take action, the policy simply lapses at the end of its term. Cancellation, on the other hand, implies a premature termination of coverage, which is distinct from a policy lapsing due to non-renewal. Therefore, the statement that an insurer does not have to remind the insured about renewal is accurate.

The scenario describes an individual injured while ice-skating. The insurer denied the claim based on a ‘winter-sports’ exclusion. The Complaints Panel, in interpreting this exclusion, considered that ‘winter-sports’ generally refers to sports taking place on snow or ice. Ice-skating, regardless of whether it’s indoors or outdoors, falls under this broad interpretation. Therefore, the exclusion for participating in winter sports would apply, leading to the rejection of the claim. This aligns with the principle that policy exclusions are interpreted based on common understanding and the nature of the activity, even if not explicitly defined within the policy document itself, as long as the interpretation is reasonable and consistent with the intent of the exclusion.

The Insurance Claims Complaints Bureau (ICCB) is designed to handle disputes related to personal insurance claims. It has a jurisdictional limit of HK$800,000 for the value of the claim. Complaints exceeding this amount, or those arising from commercial, industrial, or third-party insurance, fall outside the ICCB’s purview and must be resolved through other means such as litigation or arbitration. Therefore, a dispute involving a commercial property insurance claim, regardless of its monetary value, would not be handled by the ICCB.

This question tests the understanding of the duty of utmost good faith in insurance contracts, specifically concerning the disclosure of material facts. A material fact is defined as any circumstance that would influence a prudent insurer’s decision regarding premium calculation or risk acceptance. The duty to disclose these facts is a fundamental principle of insurance law, requiring the proposer to reveal all relevant information, regardless of whether specific questions are asked. Therefore, facts that impact an underwriter’s judgment on premium or acceptance are considered material.

The question tests the understanding of the legal significance of a certificate of compulsory insurance, particularly in motor insurance. According to the provided text, a certificate of motor insurance merely confirms the existence of compulsory insurance as prescribed by law and does not detail the policy’s coverage level (e.g., Comprehensive or Act Only). The law mandates the issuance of these certificates, and failure to do so is a criminal offense. Furthermore, the law requires insurers to recover these certificates upon policy cancellation due to their critical legal importance. Therefore, the primary legal function of such a certificate is to serve as proof of compliance with compulsory insurance requirements, not to delineate the specific terms of the policy.

This question tests the understanding of how an excess works in motor insurance, specifically the difference between a voluntary and a compulsory excess, and how they interact. A voluntary excess is chosen by the policyholder to reduce the premium, while a compulsory excess is imposed by the insurer. Standard policy excesses are a type of compulsory excess that applies universally or to specific risk factors without a premium discount. In this scenario, the policyholder chose a voluntary excess of HK$5,000. The insurer then imposed a compulsory underwriting excess of HK$2,000 due to the vehicle’s high performance. Standard policy excesses, by definition, are always in parallel with other excesses and do not qualify for premium discounts. Therefore, the total excess applicable to the claim would be the sum of the voluntary excess and the compulsory underwriting excess, which is HK$7,000. The explanation that the standard policy excess would be added to the voluntary excess is incorrect because the HK$2,000 is an underwriting excess, not a standard policy excess. The explanation that the voluntary excess replaces the compulsory excess is incorrect as they are cumulative. The explanation that only the voluntary excess applies is incorrect as compulsory excesses are also binding.

This question tests the understanding of the core principle of ‘All Risks’ insurance, which is that it covers all losses unless specifically excluded. The insurer bears the burden of proving that an exclusion applies. Option (b) is incorrect because while exclusions exist, the fundamental principle is broad coverage. Option (c) is incorrect as ‘all risks’ does not imply coverage for inherent defects or gradual deterioration, which are typically excluded. Option (d) is incorrect because the onus is on the insurer to demonstrate an exclusion, not on the insured to prove the loss is covered.

The question tests the understanding of the legal significance of a certificate of compulsory insurance, particularly in motor insurance. Section 2.2.4 (iv) of the provided text explicitly states that these certificates are issued solely because the law requires them and that failure to issue one is a criminal offense. It further emphasizes the legal importance of the certificate, making it essential for the insurer to recover it upon policy cancellation. Therefore, the primary purpose and legal mandate for issuing such a certificate is to fulfill a statutory requirement, not to detail the specific terms of coverage like ‘Comprehensive’ or ‘Act Only’, which are found in the policy document itself.

The question tests the understanding of the specific limitations of motor insurance policies for motorcycles, particularly concerning theft claims. According to the provided text, for motorcycles, theft claims are only admissible if the entire machine is stolen. This means that if only accessories are stolen, the insurer will not cover the loss under the ‘Own Damage/Accidental Damage’ section. Therefore, a motorcycle owner whose expensive custom exhaust system is stolen from their parked motorcycle would not be able to claim under their motor insurance for this specific loss.

This question tests the understanding of how insurers manage risk through policy endorsements. When an insurer identifies a specific, elevated risk associated with a particular aspect of a policyholder’s situation, such as a pre-existing back condition in personal accident insurance or a history of driving offenses within a family for motor insurance, they can modify the policy. This modification typically takes the form of an exclusion clause or endorsement. This allows the insurer to offer coverage for the general risk while specifically excluding the identified problematic element, thereby adjusting the premium and terms to reflect the actual risk profile. Options B, C, and D describe general market exclusions, the concept of utmost good faith, and the renewal process, respectively, none of which directly address the specific mechanism of tailoring coverage for an individual’s identified risk factor.

The question tests the understanding of the core components typically found in a company’s published declaration of customer service standards. These declarations are designed to outline the company’s commitment to its clients and stakeholders. Option (a) correctly identifies the commitment to quality and service as a fundamental element. Option (b) is also a common element, focusing on professional standards. Option (c) highlights efficiency and ethical business practices. Option (d) addresses the crucial aspect of claims handling. Option (e) refers to specific details on business conduct. The provided text emphasizes that these declarations are not merely self-imposed but can also be mandated by industry bodies or legislation, reinforcing their importance as a measure of performance and declared intentions.

This question tests the understanding of the core principle of ‘All Risks’ insurance, which is that it covers all losses unless specifically excluded. The insurer bears the burden of proving that an exclusion applies. Option (b) is incorrect because while exclusions exist, the fundamental principle is broad coverage. Option (c) is incorrect as ‘all risks’ does not imply coverage for intentional acts by the insured. Option (d) is incorrect because the insurer must prove an exclusion, not the insured.

The scenario describes a situation where the insured experienced a loss (damaged watch) and took action to mitigate it by sending it for repair. However, the claim was lodged two weeks after the repair was completed. The provided text emphasizes the importance of timely notification to the insurer as per policy conditions. While the insured acted promptly to get the watch repaired, the delay in notifying the insurer about the claim itself, after the repair was done, could be a breach of the ‘as soon as possible’ notification clause. This delay, even if the repair was immediate, means the insurer was not informed of the potential claim in a timely manner, which is a crucial aspect of claims processing under insurance contracts. The other options are less relevant: the insured did prove the loss occurred, the policy likely covered accidental damage (implied by the claim), and the insurer’s responsibility to prove exclusions doesn’t negate the insured’s duty to notify.

A Scheduled Policy Form is a common structure where the policy details, such as the insured’s name, the property covered, the sum insured, and the premium, are listed in a separate schedule that is attached to the main policy document. This schedule forms an integral part of the contract. The Signature Clause, also known as the Attestation Clause, is specifically the section within this scheduled policy form where the insurer formally signifies their agreement and commitment to the terms outlined in the policy. While a simple contract can be verbal or inferred from conduct, and specific exclusions are tailored to individual risks, and a step-back system relates to no-claim discounts, the Signature Clause is the direct component of the scheduled policy form that confirms the insurer’s undertaking.

The Employees’ Compensation Ordinance (ECO) mandates that employers must provide compensation to employees for injuries or death arising out of and in the course of employment. While the ECO provides a statutory framework for compensation, employers can also be liable under common law for negligence or breach of statutory duty related to workplace safety. Employees’ Compensation Insurance (ECI) policies typically cover both liabilities. The question highlights a scenario where an insurer rejected a claim because the injury did not arise out of and in the course of employment, implying the claim fell outside the scope of the ECO. However, the employer’s liability independent of the ECO, often referred to as common law liability, could still be covered if the policy is structured to include it. This type of liability arises from the employer’s fault, such as negligence, and is distinct from the no-fault compensation provided by the ECO. Therefore, even if the ECO’s conditions are not met, the employer’s common law liability for the employee’s injury could still be a valid claim under the ECI policy, provided the policy terms encompass such liabilities and the employer’s fault can be established.

The question tests the understanding of policy conditions, specifically the ‘Average’ condition. The Average clause is a penalty for under-insurance. If the value of the insured property at the time of loss is less than the sum insured, the insurer will only pay a proportion of the loss, calculated based on the ratio of the sum insured to the actual value of the property. This ensures that the insured bears a portion of the loss when they have not insured adequately. Option B is incorrect because a franchise is a threshold below which no claim is paid, but above which the full claim is paid. Option C is incorrect as an excess is a fixed amount or proportion the insured pays first. Option D is incorrect because subrogation is the insurer’s right to step into the insured’s shoes to recover from a third party responsible for the loss.

A fire business interruption policy is designed to compensate an insured business for financial losses incurred due to a disruption of operations following a covered peril, such as fire. These losses typically include the continuation of fixed operating expenses and the loss of net profit that would have been earned had the interruption not occurred. While the physical damage to buildings and contents is covered by a separate fire insurance policy, the business interruption policy addresses the consequential financial impact of that damage. It does not cover legal liabilities to third parties, which would fall under a different type of insurance.

The question tests the understanding of the specific exclusions in motorcycle insurance policies regarding theft claims. Unlike private car policies, motorcycle insurance typically only covers the entire vehicle if stolen. Loss or damage to accessories alone, even if stolen, is generally not covered under the ‘Own Damage/Accidental Damage’ section of a motorcycle policy, unless explicitly stated as an extra benefit or covered under a different policy section. This is a key distinction from private car insurance where accessory theft might be covered under certain conditions.

The scenario highlights the importance of the insured’s duty to notify the insurer of a potential claim promptly. While the insured believed 20 days was reasonable, the insurer’s ability to investigate was prejudiced by the repair being completed before notification. The Complaints Panel acknowledged this prejudice but ultimately ruled in favour of the insured due to the simplicity of the circumstances and the availability of alternative verification methods (repair slip, inspection of parts). This suggests that while timely notification is crucial, the degree of prejudice to the insurer and the overall genuineness of the claim can influence the outcome, especially in cases where the insured might be considered a layman acting in good faith. The key takeaway is that a breach of the notification condition doesn’t automatically void a claim if the insurer’s ability to assess the claim is not significantly impaired and the claim is otherwise valid.

The scenario describes a situation where an insurer rejected a hospitalization claim due to a pre-existing condition. The insured had consulted for rectal bleeding 15 months before applying for insurance, and the insurer believed the colon tumor could not have developed within 10 days of policy inception. The Complaints Panel, considering the tumor size, agreed that it likely took time to grow, and since the policy excluded illnesses presenting signs or symptoms prior to commencement, the insurer’s decision was upheld. This aligns with the principle that insurance policies typically exclude coverage for conditions that were already present or manifesting before the policy’s effective date, even if not formally diagnosed. The difficulty in ascertaining the exact onset date is a common challenge in applying such exclusions, but the evidence of prior symptoms and the tumor’s likely growth period supported the insurer’s stance.

The question tests the understanding of exclusions in pleasure craft insurance policies, specifically concerning the ship’s boat. According to the provided text, a ship’s boat is excluded from coverage if it is not permanently marked with the parent boat’s name. This implies that if the ship’s boat is properly marked, it would be covered under the policy. Therefore, the scenario where the ship’s boat is lost overboard but is marked with the parent vessel’s name would be a covered loss, assuming no other exclusions apply.

The scenario highlights the importance of the insured’s duty to notify the insurer of a potential claim as soon as reasonably possible. While the insured in the first case reported the claim within 20 days of the damage, the repair had already been completed, hindering the insurer’s ability to investigate the cause and extent of the damage. The Complaints Panel acknowledged this prejudice. However, they considered the circumstances simple, the damage verifiable through the repair slip and inspection, and the insured’s reporting period (20 days) as potentially meeting the ‘as soon as reasonably possible’ standard for a layman, especially without a history of poor claims. This suggests the panel viewed the notification clause not as a strict condition precedent to liability in this specific instance, but rather as a requirement whose breach would be assessed based on prejudice and the overall context. The second case, however, clearly shows a breach of a specific 30-day notification period, with the insured’s reasoning for the delay deemed unreasonable and the delay found to have prejudiced the insurer. The panel’s endorsement of the insurer’s rejection in the second case, despite the insured’s arguments, underscores the significance of adhering to explicit timeframes and the potential for prejudice to justify claim denial.

The Employees’ Compensation Ordinance (ECO) mandates that employers must provide compensation to employees for injuries or death arising out of and in the course of employment. Employees’ Compensation Insurance (ECI) policies are designed to cover an employer’s liability under this ordinance. However, employers can also have liability independent of the ECO, often referred to as common law liability, which arises from negligence or breach of statutory duty related to workplace safety. This common law liability is also typically covered by an ECI policy, but the compensation awarded under common law is net of any amounts already paid or payable under the ECO. Therefore, an ECI policy covers both statutory liability under the ECO and common law liability for employee injuries, with the latter being distinct from the former and subject to proof of fault.

The question tests the understanding of how premiums are determined in Personal Accident (PA) insurance, specifically referencing the provided text. The text explicitly states that while individual features like age might have underwriting implications, the standard premium calculation is primarily based on the insured’s occupation. Occupations are classified according to their accident risk, and this classification directly influences the premium rate. Therefore, occupation is the fundamental basis for premium calculation in this context, not the sum insured, the insured’s gender (as rates are generally the same for male and female risks, all else being equal), or the presence of sickness cover (which is typically excluded in Hong Kong PA policies).

This question tests the understanding of how insurers manage risk through policy endorsements. When an insurer identifies a specific, elevated risk associated with a particular aspect of a policy, such as a pre-existing back condition in personal accident insurance or a high-risk driver in motor insurance, they can choose to exclude coverage for that specific risk. This is achieved through a ‘specially worded exclusion’ or an endorsement that carves out the problematic element while allowing the rest of the policy to remain in force. This allows the insurer to offer coverage for the standard risk while mitigating losses from the identified adverse factor, rather than outright declining the entire policy. Options B, C, and D describe different types of exclusions or policy adjustments that do not precisely fit the scenario of tailoring coverage for a specific, identified risk within an otherwise standard policy.

This question tests the understanding of exclusions in Directors’ and Officers’ (D&O) liability insurance, specifically concerning actions taken by the insured. The scenario describes a director who, prior to the policy’s inception, was aware of a potential issue that later led to a claim. D&O policies typically exclude coverage for circumstances known or that ought to have been known at the policy inception date. This exclusion aims to prevent individuals from obtaining insurance coverage for known risks they have already encountered or are aware of. Option B is incorrect because while dishonesty is an exclusion, the scenario doesn’t explicitly state dishonesty, and the primary exclusion here relates to prior knowledge. Option C is incorrect as contractual liability exclusions are separate from the knowledge of circumstances. Option D is incorrect because while pollution is a standard exclusion, it’s not the relevant exclusion for the described situation.

This question tests the understanding of how contract terms are classified based on their timing of operation within an insurance contract. A ‘condition precedent to liability’ is a term whose breach does not void the entire contract but specifically invalidates a particular claim. The scenario describes a situation where the insured fails to notify the insurer of a change in profession, which is a common example of a condition subsequent to the contract. However, the question asks about the consequence of failing to notify the insurer about a change in profession *if* the policy explicitly states that such a failure leads to the forfeiture of rights for any claim arising from that change. This forfeiture of rights for a specific claim, rather than voiding the entire contract, aligns with the definition of a condition precedent to liability. Therefore, the failure to notify, under these specific policy terms, acts as a condition precedent to the insurer’s liability for claims related to the changed profession.

Institute Cargo Clauses (A) provides the broadest coverage, insuring against all risks of physical loss or damage to the insured subject matter, except for those specifically excluded. This is often referred to as ‘all risks’ coverage. Clauses (B) and (C) offer more limited protection, covering only a specified list of perils. Therefore, a shipment insured under Clause (A) would be protected against damage caused by a sudden, unexpected mechanical breakdown of the refrigeration unit, assuming it’s not an excluded peril like inherent vice or wear and tear.

The question tests the understanding of policy conditions, specifically the ‘Average’ condition. The ‘Average’ clause is a penalty for under-insurance. If the sum insured is less than the value of the property at the time of loss, the insurer will only pay a proportion of the loss, calculated based on the ratio of the sum insured to the actual value. In this scenario, the property is valued at HK$500,000, but only insured for HK$300,000. The loss is HK$100,000. Applying the average clause, the payout would be (HK$300,000 / HK$500,000) * HK$100,000 = HK$60,000. Therefore, the insured would receive HK$60,000, and the remaining HK$40,000 of the loss would not be recoverable due to under-insurance.